#Brexit Facts
2017 UK General Election was all about Brexit, which is expected to be a long, painful and unprecedented process. Obviously, before making up their opinions, voters needed some clarity on how the parties planned to handle the Brexit-related issues.
Public debate in the UK General Election campaign was overwhelmingly dominated by issues like health & social spending on the elderly, nuclear weapons, terrorism, policing & security.
Have you noticed that there was a huge omission from the election debate and journalists let both parties get away with that? Yes, it is about Economics! Economy featured very little in the campaign of both major parties with no comprehensive debate on how they would handle the heavy economic consequences of Brexit. Actually, they did not even bother to give an estimated cost of Brexit under the “hard Brexit” scenario which happens to be the favourite option of both Labour and the Tories (so that the UK can take the control of its borders back).
The UK economy is already showing serious signs of weaknesses mostly driven by the uncertainty surrounding the future EU-UK relationship. Let’s have a quick look to the UK economy as it stands in the first half of 2017:
- Since the Brexit vote, the British Pound has been depreciating dramatically (about 18%), however exports growth remained disappointingly weak, aggravating the negative contribution of external trade to GDP.
- Inflation stands well above the target of 2% and the Bank of England expects it to remain close to 3% throughout the year.
- High inflation is eroding the purchasing power of consumers and real earnings are declining further every quarter.
- The UK public debt is at historically high levels and lower growth prospects coupled with uncertainty surrounding Brexit negotiations is likely to reduce investors’ appetite to hold UK debt, also in the medium-term.
Against this background, I will pick only 3 issues from a long list of issues to be discussed in the 2017 UK General Election campaign:
- Pound depreciation does not seem to naturally support the exporting sector. The UK manufacturing sector is extremely small, accounting for less than 10 % of total labour force. Moreover, it is highly inefficient with lower productivity than Italy’s. What kind of policies have the leaders in mind to enhance the exporting sector after leaving the EU?
- Leaving the EU means leaving the Common Agricultural Policy (CAP). So far, the UK farmers have heavily relied on CAP subsidies, which are worth about £3.5bn a year, making up about 55% of farmers’ incomes. How would the farming sector survive without the EU funds? Would there be a new UK fund allocated to farming?
- UK public debt is already at historically high levels. Brexit will result in a dramatic decline of tax revenues as a consequence of following developments: Lower economic growth, high inflation, loss of financial passporting rights for the EU, lower demand for services, the relocation of financial activities and the qualified migrants to the Continent, etc. How will the new government cope with declining public revenues without increasing taxes (as higher taxes would further drag the economy down)?
Whoever wins the election, (s)he had to deal with these issues immediately. Then, why was ‘economy’ the elephant in the room during the entire campaign? Did both Labour and Conservative parties even have a plan to deal with these key economic challenges coming with Brexit?
How many Brexiteers do still believe that there is a ‘cake’ and they will truly eat it soon? Sadly, post-truth politics thrived in the General Election and history repeated itself in less than a year. In the name of democracy, UK voters were asked to make a crucial choice for future generations without having any clarity on what they are signing for.
Really good summing up of the madness surrounding the Brexit idiocy. But you forget WE ARE AN ISLAND and do not give a shit about anyone else as we won the war and the rest of the world owes us a living. Also we do not need democracy – only the poor need that and we are getting rid of them. Our great Conservative Party is the leading right wing party in Europe and we know business because we are its representatives (in fact we are a corporate entity masquerading as a political party). We only care about our friends in the city and they have shown themselves again and again to be smart and clever with our taxpayers money. But now, sadly there will be no hard Brexit thanks to those idiots in the media and the polls letting down our great leader with false news. Now is a time for reflection: the country is in crisis we need a strong and stable leader to keep a firm hand on the tiller!
Sorry this reply is in poor taste. I am interested in Marxist economics. Yes I have read Thomas Piketty’s capital and think it more, or as, significant as anything wikileaks has done. Keep up the good work!
Dear Dr Ed Whittaker thanks a lot for your sensible comments.
I am even more pessimistic than you, I doubt that the current tabloid-led democracy would be able to generate this ‘strong and stable’leader.
l find it desperate that the UK press let both the Conservative and Labour party to campaign for GE2017 without any tangible economic plan. They failed to ask the right questions. Politicians pursued again their own interests and used the mass media to spread propaganda.
Low & Middle classes supporting the Tories do not even realise that money is being stolen out of their pockets as well as their children’s future.
Where/how do you see then the way out?
Have a great day
Selin
Excellent article. Very clear. But what could the Bank of England do in this situation of higher inflation and lower growth? Very challenging!
Dear Steph,
This is a very relevant point indeed. I think the key aspect here is ‘confidence’ and the ball is at the politicians’ court.
In 2017, business confidence suffered from the uncertainty surrounding Brexit negotiations. May had no clear Brexit-negotiation plan and the GE2017 outcome did not bring any clarity to the situation so far.
I guess the BoE can only do what is within its mandate and what is possible with the tools at its disposal. I expect interest rates remain low in UK although other major Central Bank will start tightening. This would have the serious perverse effect of ‘further GBP depreciation’ which will raise inflation and erode purchasing power even more.
Do you see any alternative policy that the BoE could follow to accompany Brexit? In any case, I would not like to be at Mark Carney’s place during these tough times 🙂
Selin
I think the UK needs a good policy mix. The BoE will have to react at some point to prevent further inflationary pressures. Fiscal policy can then take the lead to tackle the issue of low growth. Brexit is a real challenge for UK policy makers.